Tioga County gas lease deal hits a snag

eCorp says it is committed to reaching agreement

May 1, 2012

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A tentative gas lease deal that could upend New York's moratorium on shale gas drilling is going back to the drawing board.

On March 28, Houston-based eCorp International LLC and Southern Tier Energy Partners, a landowners group representing about 2,000 landowners and 135,000 acres in Tioga County, announced they had reached a memorandum of understanding and were in the process of negotiating a lease agreement.

The two parties released an outline of their proposed leasing arrangement in April, but eCorp CEO James Thrash said on Monday this plan did not "find agreement among a consensus of the stakeholders."

The plan would have required landowners to forgo bonus payments and accept a relatively-low 12.5 percent royalty rate, in exchange for part-ownership of 13 independent operating companies that would be set up to control gas development in 13 different swaths of Tioga County.

"After greater in-depth analysis of the original conceptions," Thrash said, "we felt that the preliminary notion of incorporating a landowner-owned company might prove too complex and cumbersome."

The tentative agreement in March sent ripples of debate statewide due to eCorp's stated intention to use liquefied petroleum gas -- rather than large volumes of water -- to unlock natural gas trapped inside the Marcellus and Utica shale formations, which would circumvent New York's four-year hold on high-volume hydraulic fracturing.

Since then, several meetings between the company and landowners have been held in Tioga and Broome counties to discuss those plans.

In Monday's announcement, the company said current and projected low natural gas prices render shale gas drilling "marginally economic" under typical lease agreements -- a problem the parties sought to work around by giving landowners a financial stake in the drilling.

Still, Thrash said the company is committed to finalizing a deal.

"We will continue to attempt to craft an approach that will be streamlined, understandable, and afford greater flexibility to those considering selecting eCORP as the operator working their land," he said, "and hope to be back with a new and more workable concept in the near future."

Nick Schoonover, leader of the Tioga County landowners group, did not respond to phone and e-mail requests for comment Tuesday.

The group's attorney, Chris Denton, referred questions to Schoonover.

New York's moratorium on high-volume, hydraulic fracturing has been in place since 2008 due to the state Department of Environmental Conservation's ongoing review of the environmental impact of the technique, used to release oil and gas trapped in tightly-packed shale formations.

Because the impact review applies to the fracturing of wells using large volumes of water, fracturing using liquefied petroleum gas is not subject to moratorium.

However, environmental groups have expressed concerns about potential petroleum gas drilling in recent weeks and DEC spokeswoman Emily DeSantis has said applications for drilling permits proposing to use the technique "may require additional review and additional analysis."